Sappi's (SPPJY) CEO Stephen Robert Binnie on Fiscal Q3 2017 Results - Earnings Call Transcript

About: Sappi Ltd. ADR (SPPJY)
by: SA Transcripts

Sappi Ltd. ADR (OTCPK:SPPJY) Q3 2017 Results Earnings Conference Call August 3, 2017 9:00 AM ET


Stephen Robert Binnie - Executive Director and Chief Executive Officer

Berend John Wiersum - Chief Executive Officer of Sappi Europe

Alexander van Coller Thiel - Chief Executive Officer of Sappi Southern Africa

Mark Gardner - President and Chief Executive Officer of Sappi North America

Glen Thomas Pearce - Executive Director and Chief Financial Officer


Wade Napier - Avior Research

Sean Ungerer - Arqaam Capital

David Roux - Bank of America Merrill Lynch

Brian Morgan - RMB Morgan Stanley Research

Ross Krige - J.P. Morgan

Matthew Auerbach - Capricorn Fund Managers

Riccardo Ottaviani - Ares

Stephen Robert Binnie

Thank you. Good day, everybody. Welcome to the third quarter results call. I will call out the page numbers as I move through the presentation deck.

And firstly, on slide four, the highlights for the quarter. EBITDA, excluding special items of $155 million, marginally down on last year's $160 million. Profit for the period, bottom line, up from $32 million last year to $58 million in the current year. Obviously, on the back of a significantly lower interest charge.

Earnings per share was flat at US$0.11.

We continue to bring down our net debt. It was down $265 million year-on-year and down to just above the $1.3 billion mark. And during the quarter, we repaid $400 million of our bonds from available cash reserves that we had on hand.

Then, turning to slide five, some of our key financial ratios. Net debt-to-EBITDA continues to come down. And you can see it, in Q3 2017, we're now down at 1.7 times. That's below our targeted level of 2x. EBITDA margin at 12.3%.

And then the return on capital employed – this is obviously the quarterly number analyzed at 12.8%. The third quarter is our lowest quarter because of the shuts that we have. Annually, that number is over 17%.

Then to slide six. The EBITDA bridge from last year to this year. On sales volume, we've seen positive growth across all our product categories. Dissolving pulp continues to be good. Specialty packaging goes from strength to strength. And then, also even in this quarter, we actually saw positive volumes coming through from our graphic paper.

Prices were up in dissolving pulp. Remember, they are priced – the bulk of the contracts are priced off of the previous spot prices – the previous quarter's spot prices. So, we did continue to benefit from the higher prices. And then, also on the mix side, there's a shift away from graphics towards specialties, which sell at a higher price.

Costs were under pressure because of the – well, predominantly because of higher pulp prices, but a number of the other chemical prices were up – market prices were up on a year ago.

And then, the big impact negatively was exchange rates. The rand has strengthened significantly year-on-year. And that had a negative $14 million relative to last year.

Then, turning to page seven, the contribution split across product categories. You can see that EBITDA split roughly half-half between specialized sales on paper. Within paper, graphic paper, coated paper is 35% of the 50% and our specialties and packaging is 15%. So, that continues to grow. And I think I've said it a few times, but by the time we get to 2020, we're targeting for that to be a 25/25 split.

Then, on to slide eight, the maturity profile for our debt. And it tells a very encouraging story. We've now refinanced or repaid all of our shorter-term debt and we really have nothing maturing now in the next few years. So, we've pushed out the securitization to 2020 and all our bonds are now 2022 and beyond. So, in a very good position.

Then, on to page nine, the CapEx for this year, we're looking at about $330 million. And that's a bit higher than prior years, but that's because we've commenced these conversion projects going from graphic paper to specialties and the debottlenecking down in South Africa.

Next year, we're estimating at about $450 million mark, the continuation of the conversion projects. And then also, we're putting in a new woodyard at our Saiccor Mill to give us more space there and get it ready for future growth.

Moving then forward to slide 11, the trends in graphic or paper markets. And as I said earlier, the demand for graphic paper was better this quarter. It's the first time we've seen growth in some time, and it was particularly strong in the export market.

Specialties, the markets continued to look good for us and they are growing at between 1% and 5%. Unfortunately, selling prices are down on where they were a year ago. In both Europe and the US, we have announced price increases effective 1 July. And looking at the performance in July and the order book going forward, we're encouraged by how those price increases have been undertaken.

Unfortunately, costs have been an issue, and in particular, the paper pulp for our European business because it's only 55% integrated. Latex is another cost that was up year-on-year.

Going forward, we'll continue to look for opportunities to convert capacity away from coated towards packaging and ongoing focus on costs.

Then, turning to each of the regions, page 12. Europe, firstly – and I've mentioned it a couple of times, but the higher raw material prices did impact on margins, although graphic paper volumes were up during the quarter. As I said, we put through a price increase and it is encouraging so far. Specialties continues to really do well for us and up 17% year-on-year.

In North America, performance in absolute terms similar to last year, benefited from better dissolving pulp prices and volumes and costs well-managed. Unfortunately, the coated paper prices are down 6% on last year. That was, obviously, before the price increase that we announced in July, which is looking encouraging for us.

And then, on the packaging side, albeit from a relatively small base, but the volumes there are up 20% and those will accelerate once we complete the Somerset conversion.

The dissolving pulp markets next. And that's a summary on slide 14. We continue to see strong demand. And in terms of capacity, if we look out towards capacity that's been announced in the marketplace, we expect over the next four or five years for it to grow at about 5%. And that is consistent with our expectation on the demand side. So, we continue to feel that the market is encouraging and in balance.

Shorter-term, we did see the prices come down April through June, but, in July, we've seen a recovery and we are encouraged that prices will continue to rise as we move forward over the next couple of months. Also, with pulp prices being so high, there may be some capacity being attracted back away from dissolving pulp towards paper pulp.

We continue to work closely with our customers to look for growth opportunities. We have some short-term opportunities in South Africa to give us up to 100,000 tons. And longer term – and I've talked about this on previous calls – we're looking to add further capacity. We estimate, in the next few years, we need about 500,000 tons and we are evaluating opportunities, both internally and externally.

In South Africa, turning to slide 15, unfortunately, the stronger rand does have an impact on margins. That was the number I shared with you on the earlier slide. And then, during Q3 is when we have a big shut in Ngodwana, so you do have higher maintenance costs associated with that.

Dissolving pulp prices – I've talked about – were good relative to year-on-year. And our paper business, predominantly in packaging towards the citrus export market, is very strong for us and continues to grow, and we think there will be further opportunities in the future.

Moving to strategy side and five pillars of our strategy. And then, firstly, on page 17, ongoing focus on costs. Firstly, we've listed a few of the projects we're working on. The first one is the Somerset woodyard project, which we are going to be commencing soon. We estimate the cost of that will be about $50 million and that's in the CapEx numbers that I highlighted to you.

The procurement initiatives, ongoing and successful for us. We promised $100 million and we're on track for that. And by the end of this year, we'll be tracking at $63 million.

We also had a project for the Somerset Mill as well – also a woodyard – and that's expected to be completed in the next couple of months and we'll be ready for production early in the new financial year.

Moving to slide 18, rationalizing our declining businesses. And I've said it many times, but we continue to anticipate demand reduction for coated paper and we look for opportunities to move that capacity elsewhere. We announced earlier this year some projects in Europe, firstly to take Lanaken out of lightweight coated mechanical paper and then reducing our coated wood-free exposure at a number of our – Maastricht, predominantly in Europe, a little bit in Ehingen and the Somerset PM1 machine as well.

Moving to slide 19, we look for opportunities to expand growth through moderate investments. The projects that we list here, some of them we've talked about previously, but just to reemphasize, we've got the debottlenecking at Saiccor and in Ngodwana. Obviously, the conversions that I talked about.

We made a small acquisition for a business called Rockwell. It was small. We acquired it for its technology. It was £8 million we paid for that upfront. And that's to help us on the barrier paper side for our specialty packaging. And we brought on-board their R&D.

We continue to believe that there are opportunities for expansion in packaging in South Africa, at Ngodwana and Tugela. And what's important strategically is to continue to secure hardwood timber supply.

Moving to slide 20, the balance sheet focus, done a lot of good work over the years. We, obviously, repaid the bonds in this quarter. And going forward, our cash interest cost is now down to between $60 million and $70 million.

Slide 21, obviously, as we continue to reposition the business away from coated paper, we look for opportunities in a few areas. The specialty packaging, we'll continue to accelerate on the biomaterials front.

As you know, we've put into place a few different pilot plants for different product categories, and those are ongoing and, hopefully, will generate revenue in the future. And then dissolving pulp, excited about the opportunities. I've already talked about the fact that we want to grow capacity and then we're evaluating a number of different opportunities.

Turning to our outlook finally and on to page 23. Dissolving pulp prices, as I've mentioned earlier, are predominantly benchmarked off the previous quarter spot prices, our contracts. So, that will mean lower prices in Q4.

However, as I said, spot prices have already started bouncing back up and the longer-term market dynamics appear very favorable. We expect demand growth to be 5% or 6%. So, it's a very good opportunity for us.

In Europe, market demand has stabilized and actually export markets are pretty good at the moment. US is tough, a lot of that coming through from imports. And, obviously, we are focusing on price increases across the two businesses.

Specialties continues to grow. We have margins in the mid-teens, EBITDA margins, and the conversions that I referred to earlier are on track and we're excited about the growth prospect.

CapEx for the quarter, $170 million, which includes the projects that I’ve referred to earlier. And so, all in all, based on the current market conditions, we expect fourth quarter results to be slightly below that of 2016, and that's really because of the stronger rand. That’s the main reason. And full year will be above last year.

So, operator, that's – I’ve gone through the presentation deck. I hand it back to you for questions.

Question-and-Answer Session


Thank you very much, sir. [Operator Instructions] Our first question is from Wade Napier of Avior Capital Markets.

Wade Napier

Hi, guys. Thanks for the opportunity to ask questions. Can you just maybe give us some color on what's actually driving this strong sort of growth in export markets?

And then, secondly, so you want to invest in a woodyard at Saiccor to potentially sort of expand operations. If we sort of read between the lines there, that seems like a big investment to sort of expand for potential debottlenecking. Does that sort of imply we may be looking at a brownfield expansion at Saiccor?

And then, can you just give us a bit of flavor on North American variable costs? Obviously, Cloquet is producing more DWP, which would imply you're buying more hardwood pulp. Does this mean – so then, how did your sort of variable costs decline? Thanks very much.

Stephen Robert Binnie

Yes, yes. Okay. Sorry, Wade. I missed the first question again. Do you mind just repeating it? Our growth in exports, yes.

Look, obviously, the fact that raw material prices have risen significantly has created an opportunity for better margins in the export markets. And we have been able to push up prices a little bit relative to European markets.

Berry, do you want to expand a little bit further on specifically which countries the growth is coming from?

Berend John Wiersum

Yes, Steve. It's a number of countries, including South America, Middle East, Southeast Asia. A part of the reason is that demand in China has been very, very strong for Chinese home producers. And a lot of old, high-polluting capacity in China has been closed down. This has focused Chinese paper producers' minds more on China and they've been less aggressive on the export market, and that's opened up an opportunity for European suppliers.

Stephen Robert Binnie

Yeah, thanks. On your second question, the woodyard at Saiccor, I will let Alex expand further. But if you've been to the mill, you'll know that we are somewhat restricted for space there for expansion. And by spending on the woodyard, that will create space for us.

Longer term, yes, we do see growth opportunities, but we don't anticipate adding the big volumes in the next year or two. But I will let Alex expand a little bit further.

Alexander van Coller Thiel

Thanks, Steve. Wade, the one opportunity we have, we have a logistics flow issue with the restricted space. And by investing in the woodyard, we are able to improve quality by being able to sort fiber types, so the timber that we actually cook into a further variety of species. So, we cook the species specifically. And that actually has a reasonably good payback. So, we're investing in the woodyard, but there is a fairly good return in terms of dropping your variable cost, improving the quality of the product, but then also setting you up for future expansions.

Stephen Robert Binnie

And then, North American variable costs, I'll let Mark expand further. But we have seen – yes, you're right. They have had to purchase more pulp. But timber prices have been coming down in the US. Mark, do you want to talk further?

Mark Gardner

Sure. Thanks, Steve. Yes, what – and you called it out with our Project Ranulph work. A lot has been done over the last year on our variable costs, variable usage at all of our sites and we've been able to manage our costs accordingly, and not really have had the margin erosion on the variable cost side due to some of the material cost going up because we've been able to offset that with good work on usage. And also, material pricing has been good too because of the way we've been able to procure some of our materials.

Stephen Robert Binnie

Thanks, Mark.

Wade Napier

Right. Thanks very much, guys.


Thank you. Our next question is from Sean Ungerer of Arqaam Capital. Please go ahead.

Sean Ungerer

Good afternoon, everyone. Thanks for your time. Just quickly, in terms of the $100 million savings, obviously, the ramp-up at the moment is pretty decent. Are you sort of leaning towards a bit of upside after that?

And then, just secondly, the timing of DWP at the port, normally, it's about 5,000 tons. This time, it was about 15,000 tons, which sounds a bit high. Are you worried this is going to happen again?

And then, just in terms of Europe, obviously, really solid volume growth. On the cost side, is there anything else you guys are trying to do to sort of improve that a little bit?

And then, if you look at the US, in terms of breaking down the impact of domestic coated pre-sheet prices, how much is sort of demand versus the euro/dollar at the moment?

Stephen Robert Binnie

Okay. The $100 million upside, yes, we're tracking ahead of the $100 million number here. We're at $63 million. We're above those levels. Obviously, the way we measure those is – they're independent from market moves. And clearly, some of the rises in the pulp price that we've talked about have offset the benefit when it comes to looking at the bottom line.

I am slightly wary to commit to a specific number above $100 million, but the $63 million that we're referring to is tracking ahead of where we thought we would be at this point in time. So, I'm confident that we can beat the number.

The port delay, I'll let Alex speak to a little bit more. You're right. The number is higher than it normally is. Unfortunately, there was a shipment at the end of June that didn't get off in time. And the numbers – that volume will flow into this quarter. We're doing a lot of work internally to make sure that, by the time we get to the end of September, there is not spillage into next year. And that's looking at accelerating some of the shipments. Alex, I don't know, anything you want to add to that?

Alexander van Coller Thiel


Stephen Robert Binnie


Alexander van Coller Thiel

Thanks very much.

Stephen Robert Binnie

Sorry, did you catch that?

The European costs, clearly, we've been impacted by the pulp. And our pulp integration that I referred to earlier in Europe is 55%. Berry, long-term, strategically, we, obviously, want to look for opportunities to improve our pulp integration. Is there anything you want to add to that?

Berend John Wiersum

Well, I think in pulp – thank you, Steve. To the question, have we done anything to offset the rather extreme effect of pulp price rises in Europe, yes, we did do some hedging during quarter three and that took some of the edge off it. Ranulph is paying a big role in terms of finding ways to purchase pulp, which takes some of the edge off it. And then, we have been improving the efficiencies, and therefore, the conversion efficiency of raw material into finished products rapidly over the past year. And finally, we have been able to put through some price rises and that's also offset those costs.

Stephen Robert Binnie

Yeah, thank you. And then finally, Mark, the question was on the price increase for coated pre-sheets in the US. Do you want to just talk about how successful we've been?

Mark Gardner

Yeah. Thank you, Steve. Yes, the price increase that we announced for July has been going through quite well. Obviously, as we go through this quarter, we'll see more of it start to hit the bottom line.

And it's been driven by, I think, a couple of things. One is demand – the seasonal uptick in demand, we're starting to see that, and it's encouraging what we are seeing for backlogs grow.

The other is the capacity closures that have been announced with the Resolute closure of PM3 and also permanent closures that's been announced on PM3 and Skowhegan has tightened up the coated mechanical market and that carousels through to the coated wood free market on the web side in particular. So, it's moving in the right direction from what we've seen and where we're at right as of now.

Stephen Robert Binnie

Yeah. Okay. Thanks, Mark. Thanks, Sean.

Sean Ungerer

Thanks very much, guys.


Thank you. Our next question is from David Roux of Merrill Lynch. Please go ahead.

David Roux

Hi, guys. Can you hear me?

Stephen Robert Binnie


David Roux

Okay, thanks very much. Just a couple of questions. Just expanding on that point on the hedging of pulp in Europe. How far forward have you guys hedged? And can we expect a much larger impact from variable costs in Q4?

And then, my next question is how much DWP is Cloquet producing now on an annualized basis?

Then two last questions for Glen. Just on the ex-dividend date, do you guys intend to follow a similar pattern to last year, in which the ex-dividend date was in January, or would you guys likely revert back to the sort of pre-2008 pattern where it was in December?

And then just last question, in terms of the specialty paper business, when can we expect separate disclosure of this business in the financials?

Stephen Robert Binnie

Yeah. Okay, thanks, David. Firstly, on the hedging of pulp, it's rather limited the pulping – hedging that we do. And clearly, with pulp prices being as high as they are now, it makes less sense. So, we don't have significant volumes of hedges in place at the moment. Dissolving pulp at Cloquet is currently projected at about 230,000 tons, about two-thirds.

Glen, on the dividend?

Glen Thomas Pearce

All right. On the ex-dividend date, we don't anticipate changing it from what we had this year. So, the expectation is that we will stick with mid-January of this coming year. And then, in terms of the specialty paper, we're looking to start, not next year, but the year after, as far as disclosing it separately.

Stephen Robert Binnie

And, David, the reason for that is we've got the two conversions underway at the moment. So, we want those to be completed and then we'll be able to provide meaningful numbers at the segment level. What we'll try and do is provide the key numbers, but, ultimately, give the detail after the conversions.

David Roux

Okay, great. So, just to be clear, so likely from sort of Q1 2019.

Stephen Robert Binnie

That's correct. Yes, David.

David Roux


Stephen Robert Binnie

Thanks, David.


Thank you very much. The next question is from Brian Morgan of RMB Morgan Stanley. Please go ahead.

Brian Morgan

Hi, guys. Thanks very much. Just one question from my side is, you're adding a fair bit of capacity of FBB at Somerset. Just wondering what your thoughts are in terms of placing that paper in the market.

Stephen Robert Binnie

Yeah, yeah. Obviously, the conversion is underway at the moment and we've assessed the market. The attractiveness for us in that market is that we're going to be an independent producer of the SBS and we've been in consultations with a number of the independent converters.

Mark, do you want to just briefly talk about the progress that we are making there?

Mark Gardner

Sure, Steve. Thanks. Yes, the project is moving along very well. We have all of our major equipment and construction and engineering progressing right on time line. We're now starting to take time at our annual – at our regular maintenance shuts to do some of the pre-major shut rebuild work, which is – just to remind folks, we'll be doing the major part of the rebuild will be going on in March/April time frame of next year. We are very active on the different products. There's lot more than just SBS on the list of products that we'll be making off machine. We're very active on that side, product design, product development, working with customers in advance of the machine starting up.

We expect to have a fair amount of the product coming off the machine, already presold and placed as we move into the different markets that we'll move into. And our technology that we're applying there will give us, we believe, a unique and differentiated product in the marketplace. So, we're pretty excited about it and it's moving along right on plan.

Brian Morgan

It's brilliant. Thank you.

Stephen Robert Binnie

Thanks, Brian.


Thank you. The next question is from Ross Krige of J.P. Morgan. Please go ahead.

Ross Krige

Hi, guys. Thanks very much. Just looking at your conversions, I realize it's still [indiscernible] and variables can change, but do you have – would you be able to quantify at all your expectations around any contribution in FY 2018?

And then just on your expectations of adding additional DWP capacity, has there been any progress on that or do you have any more thoughts on where that – where and when that could be? And then, just in terms of your guidance of earnings being slightly down in Q4 – this is a bit cheeky, but is it fair to assume that's kind of lower single-digit percentage?

Stephen Robert Binnie

Yeah, yeah. Okay, the conversions that we're doing, obviously, there is a sequence of projects in Europe. The big one, obviously, being converting Maastricht. That's going to take up most of next year. So, you're only going to really see the benefits from the European conversions in the 2019 year.

The North American one is expected to – at Somerset, expected to be completed about April. So, you will start to see a little bit of a ramp-up as we move into Q4 of our next financial year. And then, you will get the full impact, obviously, in 2019.

Dissolving pulp capacity, and I said on the call – last call that we're working away, looking at opportunities internally and externally. The work is progressing nicely. I did say we would give detailed feedback, probably at the February results call – the December results call, which will occur in February.

But just some of our thoughts, there are smaller debottlenecking opportunities, obviously, within our current mills. You've heard briefly about Saiccor. We're doing a lot of work to get Saiccor, longer term, ready for growth.

And then, at the same time, from an external perspective, we were assessing what potential pulp mills are out there that we could look at and that could potentially be converted to dissolving pulp, and we have a number of possibilities which we're evaluating. And as I say, as we progress over the next few months, we will be able to give you detailed feedback. But it's progressing nicely and we do think there are opportunities there.

Then finally, the earnings, yeah, I said marginally done in the outlook statements. So, yes, it's single digits. Yes.

Ross Krige

Okay, thanks. Thanks a lot, Steve.

Stephen Robert Binnie

Yeah, thank you.

Thank you. Our next question is from Matthew Auerbach of Capricorn Fund Managers.

Matthew Auerbach

Hi, guys. Just a couple of questions. On the divi cover, you’ve guidance to the end of year. Is there any possible guidance you can give of whether it's going to go from 5 straight down to 3 or whether you're probably going to do 5, 4, 3 in terms of the divi cover?

And then, what assumptions are you using in your outlook? And also, in terms of the pulp pricing, do you have a three-month foresight as to what it will be? Or as pulp prices come down, there is a chance that your earnings guidance could be a little bit light?

And sorry, a final question in terms of – you talked about DWP pricing going up. Could you give a bit more color on that?

Stephen Robert Binnie

Okay. The dividend cover will be better this year. Matthew, we haven't made a call yet whether it will be 4 or 3. We'll, obviously, see how the last quarter unfolds. Certainly, by the time we get to the end of next financial year, it will be 3, but we'll make a call at the end of this year whether it will be 4 or 3.

The outlook on the – let me take the dissolving pulp first and then, Berry, I'll come back to you on the pulp – our outlook on the pulp prices. Dissolving pulp prices dropped to $8.30, spot prices a ton. And if you look at the market dynamics and where the marginal tons or costs per ton should be, it is around the $8.30 to $8.50 mark. So, that is where we would expect the prices to bottom.

Over the last few weeks, it's gone back up to $8.45 and the indications are that it will continue to rise in the next few weeks. So, I don't think there is any surprising and we think it will move upwards. Pulp prices, hopefully, getting closer to the top. But, Berry, I'll let you talk to where we assume the last couple of months for it to be.

Berend John Wiersum

Yeah. Thanks, Steve. It's just probably worth dividing up into softwood and hardwood because they are moving at different rates. Softwood, it has achieved a peak now and it isn't rising any further. There is new capacity coming on in a number of places, starting in this quarter and then going on into the final three months of the calendar year.

Hardwood, there is new capacity coming on, but there is sufficient demand to keep volumes pretty tight. So, stocks are still pretty low in terms of pulp and – of hardwood pulp and there are still strong attempts by pulp producers to get further price rises during this quarter. We suspect that that will be the peak, but we don't expect any benefits from declining pulp prices very much during this quarter up to the end of September.

Matthew Auerbach

And sorry, what assumptions in terms of rand and pulp prices are you using for your outlook statement? The rand is moving around so much at the moment, we might be at 13, we might be at 13.50, and it does change quite a bit.

Stephen Robert Binnie

Okay, the rand, 13.30. The pulp, we're predominantly exposed in Europe, Berry, and do you want to just talk about our assumption on the pulp price? Obviously, July has already been completed. Now we're into August and September. Berry, our assumption on the pulp prices for those markets?

Berend John Wiersum

Well, the pulp price [indiscernible] prices, then we expect the hardwood prices is going to be at $8.60, it might go to $8.80. The softwood prices, around $8.90. It will probably stay at that [indiscernible].

Stephen Robert Binnie

And that's consistent with our predictions.

Matthew Auerbach

Thank you.


Our last question is from Riccardo Ottaviani of Ares. Please go ahead.

Riccardo Ottaviani

Hi there. Just wanted to get a sense in term of pricing power for your coated wood-free segment. Where do you see operating rates in Europe and US? And how does that compare in term of recent years or in historical context?

Stephen Robert Binnie

Operating rates in Europe at the moment as an industry are just below the 90% mark. Sappi is above those levels and we've seen demand growth. So, slightly below 90%, which means it's close to the market being in balance. Berry, anything you want to add to that?

Berend John Wiersum

I think the big help for the Europeans is the strong export market and that has produced a lot of extra volume, which has filled capacities up. It's also the case that there has not been a summer slowdown in Europe. So, you're seeing pretty good demand in Europe. Generally, in quarter three, the demand was above last year. So, right now, capacities are well filled.


Does that answer your question?

Riccardo Ottaviani

Yes, sure. No, I just wanted – would you say the operating rates are higher at the movement versus – I don’t know – last year and, let's say, five years ago, given all these capacity cuts have occurred in the market or is it pretty much comparable?

Stephen Robert Binnie

Yes. Operating rates are higher. Obviously, there was – a lot of capacity came out of the market over the last three or four years. And as Berry has alluded to, the demand in Europe has been better in recent months and we've got a strong export market at the moment. So, it has pushed up operating rates relative to where we've seen them over the last two or three years. And, obviously, all of that is causing us to be reasonably confident about the price increases that we announced.

Riccardo Ottaviani

Perfect. Thank you very much.


Thank you very much. Gentlemen, we have no further questions. Would you like to make closing comments?

A - Stephen Robert Binnie

Just want to thank everybody for joining us on the call. And we look forward to discussing our results at the end of the year. Thank you very much.